Independent Financial Adviser - Commission

archy

Hello,

I am after some advice with regards to how much I should be paying my Financial Adviser.

I have an Aegon personal pension investing in four individual managed funds with an annual management charge of between 1% - 1.95%. The financial adviser is independent and I was introduced to them through my employer. The plan has a zero admin fee and zero bid offer.

In terms of advice they assisted in setting up the pension initially through salary sacrifice and picking the funds based on my requirements. I am paying in approximately a total of £430 per month, and my financial adviser is being paid approx £22 (5%) in commission each month. They have informed me that they review my plan once or twice a year. So in the year they will be paid approx £260. They will be paid 5% per month for 3 years then this drops to 1.5% per month until I retire.

Is this the going rate for an independent financial adviser or would I be better talking to them and asking for a fee?

Thank you.

dunstonh

would I be better talking to them and asking for a fee?

Is that what is being done? It sounds like a fee but being taken from the product (and therefore getting tax relief on it).

So in the year they will be paid approx £260.

Thats not very much and is a loss maker in the earlier period.

Is the 1.5% going totally to the adviser or is that the average charge to which the adviser is paid out of? Typical average is 0.5%. 1.5% is high if its going totally to the adviser.

archy

Thanks for your advice Dunstonh. After talking to Aegon -
It is commission paid to them each month from my total contribution that month and it is 5% each month (£22).

My adviser tells me that the commission will be 5% per month (£22) for 3 years then it will drop to 30% of what this figure (£6.60), which I calculate to be 1.5%.

On my policy docs it says that all commission is paid out of the AMC, which differs from the four investment funds I am investing in - from 1% - 1.95%.

My adviser states that they get paid more in the year than the AMC that Aegon deduct but that is because Aegon will make more money from me in the long term.

whiteflag_3

archy wrote: »

Thanks for your advice Dunstonh. After talking to Aegon -
It is commission paid to them each month from my total contribution that month and it is 5% each month (£22).

My adviser tells me that the commission will be 5% per month (£22) for 3 years then it will drop to 30% of what this figure (£6.60), which I calculate to be 1.5%.

On my policy docs it says that all commission is paid out of the AMC, which differs from the four investment funds I am investing in - from 1% - 1.95%.

My adviser states that they get paid more in the year than the AMC that Aegon deduct but that is because Aegon will make more money from me in the long term.

What your adviser tells you is 100% correct.

EdInvestor

In your documentation small print, look for the 'reduction in yield'. This will tell you how much fees and charges will reduce the return on your investment.For example an RIY of 2% will reduce your investment growth from 7% to 5%.

If your pension has a wide list of external funds to choose from (not just the provider's funds) then it may be worth paying 1.5% in charges.A stakeholder with a small fund selection might be worth 1%. Not worth paying more IMHO.

whiteflag_3

EdInvestor wrote: »

If your pension has a wide list of external funds to choose from (not just the provider's funds) then it may be worth paying 1.5% in charges.

As the OP has charges as high as 1.95% pa we know it cant be a stakeholder therefore the funds on the PP are listed here

http://www.aegonse.co.uk/products/fund-prices/p_prices_std.htm

More than enough choice for any sane individual!!!!!!

archy

Hello,

Thanks for all of your help. I just checked the website link and have found out the following:
Fund1 (1%) is specialist, actively managed
Fund2 (1.25%) is not on the list
Fund3 (1%) is stockmarket managed
Fund4 (1.95%) is classed as uk, actively managed

in my documentation it states:
After deductions, and putting it another way, based on an approx growth at 7%:
Fund1 - 5.90%
Fund2 - 5.90%
Fund3 - 5.70%
Fund4 - 4.90%

Does this look ok?

With regards to the commission that my IFA is getting - they are charging 5% per month for 3 years then it will dropping to 1.5% until the end of the policy. Dunstanh above says that the 1.5% figure is a bit high a should be around 0.5% - would it be ok to talk to my adviser about bringing this figure down? Another option would be to come off the commission and just pay a fixed yearly review fee.

EdInvestor

If the OP wants to check the performance of the funds that have been chosen for him, he can do this here, where they are listed and rated in their various categories :

http://www.citywire.co.uk/adviser/investments.aspx

Which one is fund 4?

archy

SE Invesco Perpetual Income

whiteflag_3

archy wrote: »

Hello,
With regards to the commission that my IFA is getting - they are charging 5% per month for 3 years then it will dropping to 1.5% until the end of the policy. Dunstanh above says that the 1.5% figure is a bit high a should be around 0.5% - would it be ok to talk to my adviser about bringing this figure down? Another option would be to come off the commission and just pay a fixed yearly review fee.

The 5% isnt a direct charge, it is level commission paid as a percentage of each contribution, which as stated earlier, Aegon are effectively financing in the short term.

The only charges you pay are annual management charges based on the fund value- which will increase in line with any increases in the fund value.
If you opted for one of Aegons funds with say a 1.5% AMC, roughly 0.5% of the fund value would go to the external manager and 1% to Aegon.

Its important to understand that charges and commission are not necessarily always linked directly.

archy

Thanks. What is a 'level commission'?
So even if I did not use a IFA then the example you give of 1.5% AMC with 1% going to Aegon and 0.5% going to the external manager would still stand? So where does the commission money come from?
Sorry for all the questions - I'm just trying to get my head around it all!